Purchasing a vehicle is an exciting venture, and if you are lucky enough you can walk out of the dealership with a sweet deal. While some of our reference links are geared towards our Australian friends looking to purchase a new car, or to trade up, these same principles apply no matter where you live. You have a number of resources from which to choose. With the number of online lenders and traditional institutions looking to cater to consumers, buying a car at a low interest rate is easier than ever, even for people who do not have the best applications.
Go online, and you can find a number of institutions ready to offer up the best interest rates, and credit unions are one of the best ways to finance if you are not comfortable with applying for a loan online. Go to any online car loan calculator to figure out how much your monthly payment will be, and the internet even has tutorials to show consumers how to figure out how much their monthly payment will be. However, the best math can be done at home on your own calculator.
Let’s take a closer look at how you can determine your final car loan payment so that you can better plan your finances.
Key Pieces Of Information
Before trying to figure out the math of your payment and final payment, there are some key pieces of information you are going want to have. First, you have to know the amount of the vehicle because that is going to be the principal amount. In math, the variable used for the principal is” P”. You need to have an idea what the interest rate is going to be, which is usually written as “r.” Then, you need to know how much time it will take you to pay off the loan, which is “t.” Your variables will be Principal= P, rate= r, and time= t.
Calculating Interest Using Pert
One way to calculate your car payment and the final payment is to use the A=Pert formula, which uses the natural logarithm e=2.72 to figure out what the car will cost after interest has compounded. Let’s say, we have found a car that costs $16,000 and the length of the loan is 3 years with an interest rate of 3.5%. The variable “A” equals the total amount of the car after it has been paid off.
If we plug these figures into the above formula, the equation is: A= (16,000)e(.035)(3) with “e” equalling 2.72. After calculating the cost of the car, the car ends up costing in total $17,771.37. Now that we know that A=$17,771.37 we can figure out how much each monthly payment should be.
If the time to pay the car off was 3 years, then we would multiply 3 times 12 (for months in the years) to get the number months or instalments that would be paid on the car, in this case, it would 36 months. To find out how much each payment would be, simply divide $17,771.37 by 36. Your answer should be approximately, $493.65 per month, so if you pay this amount every month, your last payment should be this amount.
If you want to determine how much your payment will be in the middle of your loan, you simply plug the remaining balance on the vehicle into the principal (P) part of the formula, and place the new time (t), and that should give you the new amount.
Calculating Your Final Payment
Remember, because it is a contract, you have to pay at least the minimum amount, but this formula can help you project what your last payment might be before heading into the dealership. If for whatever reason, you refinance the vehicle, your payment amount will decrease because the principal is smaller, and this all based on the new rate and time. This is just one of a few ways to calculate your payment and final payment.